EID gets a clean audit

The El Dorado Irrigation District was given a clean audit for 2016 but concerns about how to pay the growing cost of pensions and health benefits for retirees was a reoccurring topic.

The audit results were reported at the June 12 board meeting by staff members as well as Brian Nash, a partner in Richardson & Company, the firm that prepared the audit.

Key financial highlights of the audit included that as of end of 2016, the district’s total assets exceeded total liabilities by $367.6 million, $15.7 million higher than the previous year.

Capital assets, less accumulated depreciation, totaled $692.4 million, $1.4 million lower than the prior year. The auditors attributed that to a $23 million increase in capital asset additions offset by annual accumulated depreciation of $24.4 million.

Operating revenues increased $2.9 million to $58.2 million. The increase was due primarily to higher water sales and services and hydroelectric sales. Water sales and services were up 9.1 percent. Hydroelectric sales increased by 50 percent because in 2015 power generation was down due to the collapse of the Esmeralda tunnel.

Non-operating revenues were $17.5 million with majority of that coming from property taxes.

Total revenues, including operating and non-operating sources, were $75.7 million.

Facility capacity charges (FCC), which is what the district charges to hook up to its system, came to an additional $12.4 million. For smaller projects not funded by bond proceeds, a combination of FCC revenue and net rate revenue is used to fund them.

Operating expenses, not including depreciation and amortization, increased $3.4 million to $47.4 million. The majority of the increase was due to personnel costs and repairs. With depreciation, amortization and interest added in, total expenses came to $84.8 million.

As a result of an improvement in the district’s credit rating and refinancing, the district saved $1.7 million on one bond issue; it issued $38.6 million in new debt to finance new capital improvement projects while raising $49.3 million in cash and refinanced $110.7 million of variable-rate debt into $85.2 million in fixed-rate debt which reduced the total outstanding debt by $25.5 million.

While overall the board appeared to be satisfied with the audit and the financial health of the district, much of the board’s discussion centered around the growing cost of retiree benefits and pensions which are managed by CalPERS.

According to the auditors, at end of 2016, EID’s net pension liability was $57.4 million, an increase of $7.8 million.

CalPERS has been slowly lowering the discount rate or rate of return on its investments. Generally, the higher the expected rate of return, the less employers have to contribute to the fund and vice versa.

Commenting on the growing liability, Director Greg Prada said the district was “being eaten alive with the acceleration of paying for pensions and retired medical. It’s huge and it’s just going to continue getting bigger.”

Doubtful about the accuracy of CalPERS projections of what its returns will be over the next few years, he said, “This is not a bona-fide calculation, just a political exercise in terms of what they want to leak out and how many local governments they want to put out of business in the next recession.”

Agreeing with Prada was Director Alan Day who said he believed “the state was almost making up numbers to kick the can down the road.”

In response, Director Dale Coco said the district has to use CalPERS numbers because otherwise the audit would be invalid.

Instead he suggested the topic be taken up again during the next budget discussions so the board can come up with a plan using what they consider to be real rate of return. “Otherwise there will be significant rate increases in order to meet these obligations,” he said.

EID’s auditor suggested some agencies are dealing with CalPERS increases by pre-funding their accounts to reduce the unfunded liability.

General Manager Jim Abercrombie said in the long run, water sales and hydroelectric revenues could also help in paying the obligations.

The board then went on to vote to accept the audit on a 4-1 vote with Prada the lone no vote.